PCS Advisory: Non-Tax Reasons for Estate Planning

Wednesday, October 3, 2018

The primary focus of estate planning is often on tax-saving strategies; however, since the newly-enacted federal estate tax laws have doubled the federal, estate, gift and GST tax exemptions to $10,000,000 per person, indexed for inflation, it is important to point out that there are many other valuable reasons why estate planning should be a priority. Below is a summary of several non-tax reasons for effective estate planning.

Organization after Death

The grief following the death of a loved one is challenging enough to deal with even absent the stress and uncertainty of a disorganized estate. To minimize that stress, and to avoid any fighting that can result from it, it helps to have a solid plan in place to help guide your family in dealing with your estate. In addition to a will and revocable trust, this may include: (1) a recent list of assets and/or advisors; (2) a list of any debts; (3) a list of passwords to digital assets; and (4) instructions or memoranda regarding last wishes.

Ensuring Your Wishes are Honored

If you die "intestate," meaning that you do not have a valid will at the time of your death, your assets will pass to individuals based on a set of laws adopted by the state in which you are domiciled. So you do have an "estate plan" even without a will, or will and revocable trust, it is just not a plan that you picked. Estate planning documents ensure that your assets pass to the individuals of your choosing and in the manner you prescribe.

Beyond the flow of assets, estate planning documents allow you to make decisions regarding the fiduciaries who will help manage your affairs after your death. This includes appointing someone to facilitate the administration of your estate, known as an executor, and someone to care for any minor child you may have at your death, known as a guardian. Without valid estate planning documents, the probate court becomes involved in the appointment of these individuals; at minimum, this creates added time and expense, but at worst, this process could result in the appointment of individuals whom you would not have chosen yourself.

Probate Avoidance

In many cases, proper estate planning can reduce, or even eliminate, the involvement of the probate court in the administration of a decedent's estate. In Connecticut, there is no way to fully avoid probate (as a tax return must be filed with the probate court), but probate court oversight can be minimized by having no—or very few—assets pass through your "probate estate," meaning the assets that pass by virtue of your will. One of the most effective ways of reducing the assets in your probate estate is to fund a revocable trust. Like a will, a revocable trust facilitates the transfer of property at death, but it does so without as much probate court oversight. In New York specifically, the probate process is often costly and time-consuming due to delays in the Surrogate's Courts, and is a public proceeding. An additional benefit to having a revocable trust is that court proceedings can be avoided when there is a change in the trustee.

Beyond the initial administration of an estate, courts in Connecticut will have ongoing jurisdiction over any trust created under a will. This jurisdiction often results in costly administrative proceedings, such as the filing of periodic probate accountings. However, this burden can be reduced by establishing continuing trusts (e.g. for a surviving spouse or descendants) under a revocable trust, over which the probate court will not have that same ongoing jurisdiction.

Privacy

What comes as a surprise to many of our clients is that a will is made public upon the death of the testator. That means that the provisions of a will become part of public record, and other court filings—such as detailed lists of assets owned at death—become susceptible to inspection by the public. Estate planning prior to death can largely curtail any unwanted disclosure. Such planning may include funding a revocable trust prior to death, as mentioned above, but it can also include the use of a business entity or irrevocable trust.

Trust Planning

People often discuss trust planning in terms of its tax advantages, but that is just one of its myriad benefits. Below are non-tax reasons to consider when contemplating trust planning.

Delaying Inheritance. There are many reasons why clients may not want their children or other beneficiaries to have immediate access to their inheritance. For example, clients will often want their children to get accustomed to money management before having full reign over a large amount of money. In this instance, it may be appropriate to put the inheritance in a trust that staggers distributions over certain age milestones. Without any structure, it is likely that a beneficiary would be able to gain full access to an inheritance at a young age.

Asset Protection. Another fear that clients have is the susceptibility of their children's inheritance to the claims of creditors, such as a divorcing spouse. In this instance, a trust from which only an independent trustee can make distributions can be put in place. If administered correctly, this "asset protection trust" can help insulate an inheritance from creditors.

Protection for Descendant. A trust is an effective vehicle to ensure a family's wealth can be preserved for descendants. For surviving spouses, a trust ensures that assets do not go to a new spouse, but are instead preserved for the descendants of a prior marriage. Using a trust for children ensures that assets may be preserved for grandchildren and that assets will not be redirected to an in-law's family.

Special Needs Planning. In order to preserve the availability of government assistance for a beneficiary who has special needs, it is important to keep his or her inheritance in a specialized trust, often referred to as a supplemental or special needs trust.

Planning for Special Assets. Some types of assets, such as business interests, art, and real estate located outside a state of domicile, can benefit from trust or entity planning, such as a limited liability company or limited partnership. Using a trust or a business entity for ownership of special assets helps facilitate succession planning and structure, and can help ensure that the family business or family vacation home stays in the family for generations.

Charitable Planning

Charitable giving at death is never a self-effectuating process; it requires affirmative planning during your lifetime. If a client is charitably inclined, it likely makes sense for that person to seek the advice of counsel, since certain types of assets lend themselves better to charitable giving, depending on the particular circumstances and the goals of that client.

Len Leader is a partner and Chair of the Private Client Services Department. His primary practice includes estate and probate law, tax planning for individuals, elder law and family business succession planning. He is a frequent speaker on estate and tax planning topics to bar associations, business groups and continuing education programs. For several years he has been a presenter at an annual fiduciary income tax workshop for Professional Education Systems. Mr. Leader is listed in Worth Magazine's "Top 100 Trust and Estate Lawyers," The Best lawyers in...

Veronica R.S. Bauer is a Partner in the firm's Private Client Services Department in Palm Beach, Florida. Veronica focuses her practice on estate planning, estate and trust administration and charitable planning and administration.

Her practice includes assisting individuals and families with tax-efficient and practical estate, gift and income tax planning. She also assists fiduciaries and beneficiaries through estate settlement and trust administration matters

Bob Benjamin is a partner in the Private Client Services Department and past Chair of the firm's Executive Committee (2009-2015). He counsels foreign and domestic clients in all matters relating to estate planning, probate and the taxation and administration of trusts and estates. In addition, Bob represents charitable organizations, banks and individuals in contested probate and trust matters in federal and state court. He also counsels tax-exempt organizations and members of charitable boards. He often works with clients who have complex estate planning needs, such...

Michael T. Clear is a Partner in the firm's Private Client Services Department. Michael focuses his practice on estate planning, estate and trust administration, probate litigation and business succession planning. Michael was recently selected by the Connecticut Law Tribune as a New Leader in the Law for 2013.

His estate planning practice includes assisting individuals and families with tax-efficient and practical estate and gift planning, including the preparation of wills, revocable living trusts, insurance trusts, and qualified personal residence trusts. He also...

Karen L. Clute is a member of the firm's Private Client Services Department and Labor and Employment Department, and leads the firm's Philanthropy Practice Group. Karen advises individual clients about a broad range of estate planning issues, with an emphasis on estate and income tax planning and charitable giving. She also works with executors and trustees on fiduciary matters and compliance obligations. Karen also advises employers about employment agreements, non-qualified deferred compensation and retirement plans.

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